Strategies for Capital Constrained Timber and Carbon Sink Supply Chain under the Cap-and-Trade Scheme

Abstract

We consider a capital constrained timber and carbon sink supply chain under the cap-and-trade scheme, where the forest company produces timber and carbon sink. We consider two subsidy modes: financing subsidy to the carbon sink forests and financing subsidy to the manufacturer’s emission reductions. We apply a Stackelberg model and mainly consider the impact of subsidies on the profits and the strategies of the supply chain members. The results show that when the government gives a financing subsidy to the carbon sink forests, it is conducive to promoting the expansion of carbon sink forests, as well as the enhancement of the forest company’s profit. However, a larger supply of carbon sinks generates a lower price, which leads to the manufacturer reducing the technical emission reduction level and purchasing more carbon emission rights instead. On the other hand, when the manufacturer receives a financing subsidy for the technical emission reduction costs, its production becomes cleaner than before, and the profits of the forest company and the manufacturer increase.

The Correlation Analysis of Futures Pricing Mechanism in China’s Carbon Financial Market

“…In the Guide to Chinese Climate Policy 2019, Chinese leaders declared that the impact of climate change "poses a great challenge to human survival and development" and that China is "one of the countries most vulnerable to the adverse effects of climate change". China is one of the countries hardest hit by climate change, so its active response to climate change is an intrinsic requirement for China to achieve sustainable development and they have a responsibility to promote the common development of all humankind [38][39][40]. Therefore, China is actively establishing a carbon financial market, with spot trading as the main mode of carbon trading, while the carbon futures market is only at the stage of preliminary ideas [41][42][43].…”